Emily is 72 years old. She left school after getting her high school diploma, joined a local accounting firm as an office assistant, and was sponsored with her accounting qualifications by her company while she worked. She married aged 23, bought her first home for £12,000 with her partner a few years later and had two children. Today she and her husband have paid off their £600,000 house mortgage and have healthy savings and a combined income of £50,000 from their pensions.
Emma is 27 years old. She also wanted to become an accountant. So she went to college to get a business degree, then got her first job as a trainee accountant at age 22. On top of tax, she pays 9% of her earnings above a £20,000 threshold. towards his student loan. Given the interest rates on her loan, she expects to do this until her early 50s, when any remaining loans will be written off. She spends more than half of her income to rent a room in a shared apartment. She would like to buy a one-bed apartment with her partner in the next few years, but neither has savings or relatives who can help them and between paying rent and student loan they never see themselves being able to save a down payment. Emma’s situation in 2022 isn’t great. But it’s gradually getting worse. In 2037, they rent a two-bedroom apartment without a garden – luckier than many, but tough with two children under 10. They still spend most of their income on rent. Ten years later, they had to move twice, once to move the children to another school, because landlords raised the rent. They are still in a small apartment and they are worried about their retirement in 20 years: they have no savings, pensions shredded and do not know how they will continue to pay their rent once they have stopped to work.
Emily and Emma are fictional individuals. But they are typical of those who have done well in their generation. The most significant difference between them is that Emily was born in 1950, Emma in 1995. Lots of improvements in those 45 years: longer life expectancy, less gender inequality, better school results, more of international travel, the advantages of technology.
But there is a chasm between their respective abilities to find decent and safe housing for themselves and their families. We so often talk about moving up the housing ladder as a financial advantage and, of course, those of Emily’s baby boomer generation who bought their homes reaped a significant financial windfall from rising real estate prices.
Yet the benefits go far beyond bagging a bloated asset you can rely on in retirement or pass on to your adult children. In the United Kingdom, buying your own house is the only way to guarantee security in the stages of life which, in 2022, are yet to come for Emma. It’s sad to be a tenant in your mid-20s in 2022, given how rents have skyrocketed over the past two years; the fact that until a few years ago, tenants paid the highest rents in Europe, devoting 36% of their income to housing compared to 12% for mortgage owners; and the shabby state of everything on offer and the fact that you have no idea where you’ll be living once your tenancy ends.
But still imagine being subject to the whims of a landlord and substandard housing – about a quarter of privately rented houses do not meet the standard for decent houses – when you have young children you worry about the date of next move, how far it will take you from school, grandparents and friends, if you will have to downgrade and lose a room as they get older.
So imagine how frightening your approaching retirement will be, with a public and private pension system that’s just not designed for people who haven’t already paid off their mortgages or don’t have the long-term security and controlled rents from Social Housing.
Achieving the security of a home – so fundamental to everything in life – in the UK requires that you either own it or live in social housing. Yet the public housing stock has shrunk in recent decades and there is a burgeoning army of people in their twenties and thirties who will never own property. The only option left is to rent from a private owner. The private rental sector has swelled to accommodate this, doubling in size in just a decade. But it absolutely does not provide what people need and what it provides is very expensive for tenants, but in a way that generates significant profits for landlords. The shift in the cost of acquiring skills from employers to individuals, with graduates having to pay so much for so long for a university education – and relative to the financial prospects of those who do not go to university, they are the most lucky – only made it worse.
It is one of many looming social crises that political leaders have refused to address. That’s partly because of politics: any solution to this problem will effectively redistribute landlords, who outnumber and are more likely to vote than renters. But it is also the economy: the growth of the British economy has been driven too much by consumer spending supported by a housing bubble and not enough by business investment and exports; Brexit has made the rebalancing that Gen Z desperately needs even more difficult.
We need a painful house price correction and a radical reform of the rental market, with the state capping rents and enforcing long-term leases, non-profit housing associations buying and renting housing which the owners no longer wish, or are unable, to operate and a vast program of public investment in the construction of housing for rent. The longer politicians delay the inevitable, the more the parents and retirees of tomorrow will bear the cost of their dismal failure.